SIMPLE and

COMPOUND
INTERESTS
SIMPLE INTEREST
DEFINITION OF TERMS
• Simple Interest (Is) – interest that is computed on the principal. The
interest remains constant throughout the term.
• Lender or creditor – person (or institution) who invests the money or
makes the funds available.
• Borrower or debtor – person (or institution) who owes the money or
avails of the funds from the lender.
• Origin or loan date – date on which money is received by the borrower.
• Repayment date or maturity date – date on which the money borrowed
or loan is to be completely repaid.
DEFINITION OF TERMS
• Time or term (t) – amount of time in years the money is borrowed or
invested; length of time between the origin and maturity dates.
• Principal (P) – amount of money borrowed or invested on the origin
date.
• Rate(r) – annual rate, usually in percent, charged by the lender, or rate
of increase of the invest.
• Interest (I) – amount paid or earned for the use of money.
• Maturity value or future value (F) –amount after t years that the lender
receives from the borrower on the maturity date.
Simple Interest Formula
𝐼𝑠 = 𝑃𝑟𝑡
where:
Is = Simple Interest
P = Principal or amount invested or borrowed
r = simple interest rate
t = term of time in years
Steps in finding the Simple Interest
1. Identify the given and the unknown.
P–
r–
t–
Is –
2. Substitute the given to the formula.
𝐼𝑠 = 𝑃𝑟𝑡
Formulas for finding the Principal, rate and time
given the Simple Interest
Example 1:
• How much interest will Mary earn in her investment of P12,400 at 6%
simple interest for 3 years?
Example 2:
• What is the future value of Mary’s investment of P12,400 at 6% simple
interest for 3 years?
Example 3:
• If Is = P850; r = 5% and t = 4.5 years, find the present value.
Formulas for Finding the Principal and Future
Value given the Simple Interest
• Future Value or Final Amount (F)
𝐹 =𝑃+𝐼
𝐹 = 𝑃 1 + 𝑟𝑡

Principal (P)
𝑃 =𝐹 −𝐼
Example:
A couple with three children are peacefully living in a barangay near
the City proper. The husband is a government employee while the wife is
a rug sewer. They always remind their children about this: “Bilhin ang
kailangan at huwag kailanganin ang hindi kayang bilhin”. Because of this
teaching, the children open a joint account to a certain cooperative to
have a better investment. The total amount they earned in selling rugs,
was put in their account in the cooperative to help their parents. Their
total earnings amounting to ₱5,000.00 will earn an interest rate of 7.5%
per year. Help them to compute for the simple interest earned and
maturity value, if their money will be invested in 3 years?
Solution:
Activity:
Julianne needs P57,300 to buy cooking equipment for her new house.
She is willing to pay the interest of P7,735.50 if she borrows the said
amount from the bank. If she intends to pay her obligation within 30
months, what must be the interest rate of her loan?
Seatwork #1 ( 25points)
• Analyze and solve the following problems.
1. Given: P = P15,500 ; r = 0.05 ; t = 5. Find the simple interest.
2. Given: P = P30,000 ; Is = 5,000 , t = 6. Find the rate (r).
3. Given: P = P50,000 ; Is = 800 , r = 6%. Find the time (t)
4. Given: P = P100,000 ; t = 6 months; r = 3%. Find the maturity (future)
value.
5. If Is = P750; r = 3% and t = 4 years, find the present value.